Who is an Employee for Payroll Tax Purposes?
Introduction
For payroll tax purposes, understanding who qualifies as an employee is crucial for determining tax obligations. While employment status is generally straightforward, some working arrangements—such as contractors, directors, and agency workers—can create grey areas that impact payroll tax liability.
This article explores who is classified as an employee under payroll tax laws in Queensland (QLD), New South Wales (NSW), and Victoria (VIC), including common employment types, contractor considerations, and special cases.
Definition of an Employee for Payroll Tax
An employee is generally someone who works under a contract of service (i.e., an employment contract), where:
- The employer controls how, when, and where the work is performed.
- The worker receives a salary or wages.
- The employer provides tools, equipment, and resources for the work.
- The worker does not bear financial risk (e.g., they do not operate as an independent business).
Under payroll tax laws, an employee is not just someone with a formal employment contract—certain contractors and directors may also be deemed employees for payroll tax purposes.
Categories of Workers for Payroll Tax
1. Standard Employees
These workers are engaged under a traditional employment contract and are subject to payroll tax.
✅ Includes:
- Full-time and part-time employees.
- Casual employees.
- Apprentices and trainees (exempt in some states).
2. Company Directors
✅ Payments to directors (including wages, fees, and bonuses) are subject to payroll tax.
✅ Applies to both executive and non-executive directors.
3. Contractors and Subcontractors
Contractors are typically not employees, but certain contractor payments are subject to payroll tax under “deemed employment” provisions.
Payroll Tax May Apply If:
❌ The contractor works predominantly for one employer.
❌ The employer controls how the work is performed.
❌ The contract is ongoing rather than project-based.
❌ The contractor does not employ their own workers or provide significant materials.
Each state applies contractor exemptions, such as:
✔ If the contractor provides materials, tools, or equipment for the job.
✔ If they work for multiple clients.
✔ If they operate as a genuine independent business.
Special Employment Categories & Payroll Tax Treatment
| Worker Type | Payroll Tax Applies? | Notes |
|---|---|---|
| Full-time & Part-time Employees | ✅ Yes | Subject to payroll tax. |
| Casual Employees | ✅ Yes | Payroll tax applies to wages paid. |
| Apprentices & Trainees | ❌ Exempt in some states | Check specific exemptions in QLD, NSW, and VIC. |
| Company Directors | ✅ Yes | Payments to directors are taxable. |
| Contractors | ✅ Sometimes | Depends on the nature of the contract. |
| Agency Workers | ✅ Yes (for agency) | Payroll tax is paid by the employment agency, not the host business. |
| Volunteers | ❌ No | Payments to volunteers are not subject to payroll tax. |
| Overseas Employees | ✅ Depends | If services are performed in Australia, payroll tax applies. |
| Employees Working in Multiple States | ✅ Yes | Payroll tax is allocated based on where the work is performed. |
State-Specific Payroll Tax Rules
Queensland (QLD)
- Payroll tax applies to all wages paid to employees and certain contractors.
- The annual threshold is $1.3 million.
- Apprentices and trainees may be exempt from payroll tax.
New South Wales (NSW)
- Payroll tax applies to employees and deemed contractors.
- The annual threshold is $1.2 million.
- Certain non-profit employees may be exempt.
Victoria (VIC)
- Payroll tax applies to standard employees, directors, and some contractors.
- The annual threshold is $700,000.
- Regional businesses may receive a reduced payroll tax rate.
Key Takeaways for Employers
✅ Standard employees, directors, and some contractors are subject to payroll tax.
✅ Contractors may be deemed employees based on work arrangements.
✅ Wages paid by employment agencies are subject to payroll tax at the agency level.
✅ Exemptions exist for apprentices, trainees, and certain contractors.
✅ Multi-state employees are taxed based on where the work is performed.
Conclusion
Determining who qualifies as an employee for payroll tax is essential for compliance. While standard employees are clearly covered, businesses must carefully assess contractors, directors, and agency workers to ensure they meet state payroll tax obligations.
To avoid penalties and unexpected liabilities, businesses should:
✔ Review employment and contractor agreements.
✔ Maintain accurate records of payments and exemptions.
✔ Seek professional advice if uncertain about deemed employment rules.
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